Net Present Value and Other Investment Criteria

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The purpose of this paper is to explain the importance of net present value along with other investment criteria used in determining the value of business decisions regarding today’s investments for future returns. The paper will define what is meant by net present value and show how managers can use it as an analysis tool to decide if an investment is worth the calculated risk. Also, there will be three methods discussed that managers can use to propose the best financial projects to invest in to increase revenue for its owners. The methods discussed will include: the net present rule, the payback rule, and the internal rate of return. With each method there will be an explanation of their advantages and disadvantages for managers to consider in their analysis. In conclusion there will be a brief summary of important points regarding the benefits in calculating present values of cash assets toward investing for future corporate profits.

Every day in business corporations are making decisions about their products and services to make them better and cheaper while making a profit. In this day-to-day challenge many managers have to make financial decisions based with hopes of profitable returns for the future. There are some financial risks involved, but there are ways wherein those financial investment decisions can be based on calculations through net present value (NPV) and other investment criteria to minimize the element of risk. In these calculations rest tools for managers to better predict investment strategies for more profitable future valuations in their company’s success. These tools help managers determine what project is right for today and effects on future decisions made down the road while keeping in mind th...

... middle of paper ...

...he information needed in order to project true viable results for future profitability for the company’s owners.

Works Cited

(2011). Retrieved February 8, 2014, from Accounting Explanation: http://www.accountingexplanation.com/net_present_value_method.htm
Daniel, H. (2011, July 27). Retrieved February 8, 2014, from BenefitOf.net: http://benefitof.net/benefits-of-npv/
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2011). Essentials of Coporate Finance (7th ed.). New York, New York, US: McGraw-Hill/Irwin. Retrieved January 19, 2014
Sisson, N. B. (2014). eHow. (Demand Media) Retrieved February 9, 2014, from ehow.com: http://www.ehow.com/about_7240895_definition-internal-rate-return-_irr_.html
Thomason, K. (2014). eHow. (I. Demand Media, Producer) Retrieved February 8, 2014, from http://www.ehow.com/info_8636982_advantages-present-value-project-selection.html

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